Unsold goods threaten jobs as inventory hits N100 billion
• Labour kicks, CBN hopeful of price stability
Members of the Manufacturers Association of Nigeria (MAN) last year recorded the highest inventory since the group came into being. They are certain there will be further job losses this year.
MAN President Dr. Frank Jacobs yesterday said members’ inventory — unsold goods — in 2016 was worth N100 billion as capacity utilisation averaged 40 per cent.
The increasing number of unsold goods by manufacturers is a reflection of lower purchasing power and portends job losses and lesser private sector capacity to create jobs this year.
“The trend only shows that capacity utilisation will remain stagnant — or even lower — while new jobs may not be created except demand increases,” Jacobs said.
Mrs. Omolara Aromolaran, who manages the Crown Natures Nigeria Plc., a textile and apparel outfit, agreed with the MAN President, saying, “Unsold goods mean that capital is being tied down even as projections are not being met.” Mrs. Aromolaran argued that government has not done enough to create a better environment for job creation.
The Central Bank of Nigeria (CBN) disagrees. The Spokesman of the apex bank, Isaac Okoroafor, said the regulator would guard against inflation and price instability. “The inventory build-up is as result of recession. In times of economic downturn, demand is low and you do not expect the warehouse to clear; so it is a normal thing,” he said.
“With the kind of intervention the CBN is undertaking especially in agriculture, farmers are beginning to get higher incomes. The CBN is doing everything it can to use monetary policies to stabilise prices, keep inflation low and use interventions in agriculture and industry to ensure that people’s incomes are increased in order to reduce the inventories.”
The Nigeria Labour Congress (NLC) urged the government to improve infrastructure, especially electricity, to help manufacturers attain profitability and retain jobs.
The Chairman of NLC in Lagos, Comrade Idowu Adelakan, said government’s agenda for job creation in 2017 would suffer setback if the trend continues.
Data from the manufacturers association showed that productivity in the real sector was grossly undermined, as members were not able to optimise production capacity following their inability to import requisite raw materials.
The inventory of manufactured goods in the sector stood at 16.14 per cent in 2016 from 13.7 per cent recorded in 2015.
The sector recorded N55 billion unsold finished products at the end of the first half of 2016, with collated data for the remaining part of the year showing negative profile due to prolonged economic recession.
A review of the period between 2011 and 2016 showed that manufacturers had a backlog of an inventory between 2014 and 2015, which further spilled into 2016. In 2014, the inventory recorded was N60.6 billion; N45.9 billion in 2015 while recession impacted heavily on sales in 2016 as the inventory hit about N100 billion.
Already, a total of 12,400 jobs were lost in the sector in 2016, while the total number of factory closedowns was about 50 according to MAN President, Dr. Frank Jacobs even as a greater number of companies operated skeletally in 2016.
However, in cases where operators were able to manufacture based on market demands, low consumer purchasing power and inflation have limited the real sector’s capacity to reduce such an inventory and make sales in 2016.
Performance indicators of the real sector according to data from MAN showed that capacity utilisation in the sector fell to 44.3per cent in 2016 from 50.17per cent recorded in 2015, while the value of manufacturing production grew by -3.5per cent in 2016 down from 41.8per cent growth recorded in 2015.
In terms of local sourcing of raw materials, statistics showed that such activities fell to 46.3 per cent in 2016 from 48.77per cent recorded in 2015.
Further review of activities during the year showed that basic metal, iron and steel, fabricated metal sector ranked top as the sector with highest unsold inventory with N16.2 billion at the end of the first half of 2016 owing to glut in the sector and decline in construction activities, followed by the chemicals and pharmaceuticals sector with N13.8 billion due to foreign exchange challenges and implementation of the Common External Tariff (CET) by ECOWAS member countries.
In an interview with The Guardian, Jacobs said 2016 appeared to be the worst in the history of manufacturing in the country going by the numerous challenges encountered during the year.
He listed some of the challenges to include access to foreign exchange to import raw materials, poor infrastructure, high cost of energy (both electricity and petroleum products) as well as a difficult operating environment.
On his part, the Director-General, Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf described the developments in the economy and the business environment as being influenced largely by global and domestic factors during the year.
According to him, the features of a declining economy had long manifested in the horizon before the declaration of technical recession.
“We had weak and declining purchasing power, high unemployment, weak investors’ confidence, weak fiscal position of the government at all levels; drop in sales and private sector profitability, low and declining capacity utilisation, among others. High energy cost, escalating cost of transportation, high interest rate and weak exchange rate impacted on productivity and competitiveness across all sectors of the economy. Inflation reached a peak of 18.4 per cent in November, from 9.6 per cent in January, the highest in recent years.
Yusuf, however, is hopeful of economic revival once the negative consequences of oil price rise are addressed, and there is reduction in the cost of alternative energy to operators as well as the implementation of procurement policy across all sectors, ministries, departments and agencies.
On his part, the National President of the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Dr. Bassey Edem, hinged economic recovery next year on the ability of the Federal Government to address fiscal policy inconsistencies that prevailed in 2016.